Which Top Managements are Paid More? Commercial Banks vs. Security Brokers & Dealers
International Journal of Services and Standards, Vol. 6, No. 2, 2010
23 Pages Posted: 29 Jul 2011 Last revised: 5 Aug 2011
Date Written: July 28, 2011
Abstract
We empirically test the relationship between top management compensation and performance in terms of pay-performance sensitivity (PPS). We have mixed results for fixed compensation where PPS is significantly associated with both past-year and contract-year performance for commercial banks industry, whereas security brokers & dealers industry exhibits no significant PPS relationship. However, flexible and total compensations have PPS strongly related to the contract-year performance for both commercial banks and security brokers & dealers industries. Further, there is significant difference in PPS between commercial banks and security brokers & dealers industries. Moreover, firm size and level of leverage show significant negative and positive relationship with PPS, respectively. These imply that top managements in security brokers & dealers industry, which is relatively small in size and high in level of leverage, are compensated more than those in the commercial banks industry for the same amount of increase in the shareholders’ wealth.
Keywords: top management, performance, compensation, services, standards
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